Lehman (LEH) Needs Korea For "Bad Bank" Split

Lehman Brothers (LEH) CEO Dick Fuld will reveal plans to split Lehman into two along with the company’s Q3 results, says the NYT.

The current plan is for Lehman to offload $32 billion of commercial real estate to the “bad bank” and finance that company with $24 billion in debt and $8 billion in equity.

The cooperation of Korea Development Bank is, however, integral to the plan’s success. Lehman is counting on the Korean bank to take a $6 billion stake in the “good bank” and plans to use that money to help prop up the “bad bank”. Unfortunately for Lehman, KDP has yet to agree to the terms Lehman CEO Fuld is demanding:

Talks are still continuing with the Korean Development Bank (KDB) with a view to securing $6 billion of equity in exchange for a sizeable stake in the firm. But they appear to be struggling to agree acceptable terms. “It is a game of brinkmanship”, said one banker.

If the KDB deal falls through, Lehman is expected to finance the split by selling its investment-management business, Neuberger Berman:

If the Korean deal falls through, Lehman will press ahead with a sale of its Neuberger Berman investment-management business, estimated to be worth up to $10 billion – roughly equivalent to the entire company’s current market capitalisation.

Private-equity giants KKR, Apollo and Bain Capital are all in the running for the business. A sale, however, would be a last-ditch move by Fuld, who is keen to hold on to the business.

See Also: Lehman’s (LEH) Latest Plan To Save Itself Has Promise
Lehman’s (LEH) Desperate Global Search For Buyer Uncovers…Korean Military Pension Fund

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